Rough Justice – Adjudication is here

What will adjudication mean to dispute resolution in the construction sector in Ireland? with Niav O’Higgins, Partner, Infrastructure, Construction & Utilities Group Arthur Cox.

Adjudication is here, providing a further means of resolving payment disputes and available to parties to construction contracts entered into after 25 July 2016. So what can we expect from this new dispute resolution process?

The answer is uncertain and will remain so for some time to come. The sector is busy, with contracts being put in place to which the Construction Contracts Act 2013 (the “Act”) will apply, for a range of developments, with completion dates targeted for well into 2017, 2018 and beyond, but it may still be a while before parties begin to invoke the new adjudication procedure. Perhaps more importantly, it will be some time before we can expect to see parties invoking the jurisdiction of the Irish Courts to seek to enforce or perhaps challenge an adjudicator’s decision. How the Irish Courts respond will be critical to the success of adjudication – the courts have been at the heart of the success of comparable legislation in other common law jurisdictions and this will be no less the case here.

In England & Wales, it was a few years after the Act came into effect before the courts there were called upon to enforce adjudicators’ decisions, but the first, and now seminal, decision in Macob Civil Engineering Ltd –v- Morrison Construction Ltd1 marked very clearly the direction in which the English courts would go. In that case, the judge, Dyson J, heralded the English court’s response to adjudication there by whole-heartedly upholding the integrity of the adjudication process. And this is the key: adjudication is very much a process concerned with achieving an outcome quickly to enable payments to flow. Ensuring fair procedures is paramount, but the ‘right’ answer may, in many instances, need to be sub-ordinated to the requirement of arriving at an answer ‘quickly’. This will be the key challenge faced by the courts here.

Clearly, we do not know exactly what approach the Irish Courts may take, but the decision of Dyson J is worth considering, since the assessment of the procedure enacted by Parliament in England & Wales, echoes much that will be familiar with those who have studied the adjudication procedure anticipated by section 6 of the Construction Contracts Act 2013 and the Code of Practice Governing the Conduct of Adjudications. Indeed, we may find that the judgment of Dyson J, and those judges making decisions following him, resonates here, as and when Irish judges are called upon to consider whether an adjudicator’s decision should be enforced in the Irish context:

The intention of Parliament in enacting the Act was plain. It was to introduce a speedy mechanism for settling disputes in construction contracts on a provisional, interim basis, and requiring the decisions of adjudicators to be enforced pending the final determination of disputes by arbitration, litigation or agreement …. The timetable for adjudications is tight, many would say unreasonably tight and likely to result in injustice. Parliament must be taken to have been aware of this. So far as procedure is concerned, the adjudicator is given a fairly free hand. …[H]e is required to act impartially. He is, however, permitted to take the initiative in ascertaining the facts and the law. He may therefore conduct an entirely inquisitorial process, or he may…invite representations from both parties. It is clear that Parliament intended that the adjudication should be conducted in a manner which those familiar with the grinding details of the traditional approach to the resolution of construction disputes apparently find difficult to accept. But Parliament has not abolished arbitration and litigation of construction disputes. It has merely introduced an intervening provisional stage in the dispute resolution process. Crucially, it has made clear that decisions of adjudicators are binding and are to be complied with until the dispute is finally resolved.

The framework for adjudication in Ireland whilst not identical, shares much with its English counterpart, and we can expect to see parties referring to case law from England & Wales in support of their arguments for the enforcement of a decision, even a decision which the parties know to wrong. The Irish Courts are well versed in supporting alternative dispute resolution procedures chosen by the parties, and have, for example, long upheld agreements to arbitrate, in which they have been slow to interfere. As adjudication is a creature of statute, we can expect that this non-interventionist approach being followed for adjudication, subject to the Courts being satisfied that the adjudicator has acted impartially and that principles of fair procedure have been complied with.

So how are construction contracts being amended to accommodate adjudication and what changes should you be looking for? The answer is that there are a range of approaches which can be adopted with the reality being that one size may not necessarily suit all! The nature of the contract or the projects may suggest a different approach is preferable.

At one extreme, the contract need not make any reference to adjudication or to the Act at all! The entitlement to refer a payment dispute to adjudication arises as a matter of law, and will apply whether or not your contract makes express provision for it.

In some contracts, entirely new provisions are being included to give contractual effect to the Act and the Code of Practice, sometimes delineating “payment disputes” from other disputes, with ‘payment disputes’ referred to adjudication and the courts, and ‘other’ disputes referable to conciliation and arbitration. The Act creates this distinction although in practice, it may not be very helpful to the parties. In this vein, however, the amendments to the PWC contract give adjudication a particular status, providing that other procedures, in this case, conciliation, will be stayed, if an adjudication is commenced, and will fall away and be deemed exhausted once a decision is given.These later approaches may over-complicate the advent of adjudication into the dispute resolution arena. Tried and tested dispute resolution procedures, if those are the ones the parties opt for, do not need to be ousted because of the introduction of adjudication – even if an adjudication is commenced, or indeed, a decision given, parties may still reach final agreement on that payment dispute and indeed, other disputes, through conciliation.

Amendments which can be considered by parties and which may be appropriate on particular projects /contract, include identifying potential adjudicators within the contract: whilst agreement to a potential adjudicator named in the contract will have to be re-confirmed following the issue of a notice of intention to refer a dispute to adjudication (“notice of adjudication”), the inclusion of potential adjudicators may facilitate the process of appointing an adjudicator. Parties may also want to consider whether the h category of disputes referable to adjudication should be expanded (although it may be preferable to wait until it is clear what a ‘payment dispute’ in fact is). It may also be helpful to reinforce the timelines anticipated under the Act for the conclusion of the adjudication process, for example, by the parties agreeing to expedite the appointment process as far as practicable. Under the Act and the Code of Practice, the procedure anticipates that the strict timelines do not commence until an adjudicator has been appointed. Thus, the notice of referral is to be delivered within 7 days of the appointment, with the decision then made within 28 days (or 42 days if agreed by the referring party) of the notice of referral. However, if agreement cannot be reached, it could easily be two weeks or more for an adjudicator to be appointed: as the notice of adjudication will already have issued, the experience of ‘ambush’ adjudications is much less likely to arise here. 2

Conclusion

So, what will adjudication mean to the resolution of construction disputes in Ireland? It is probably too early to say. But if parties and the Irish Courts embrace this new process for what it is intended to be, namely a quick (and relatively inexpensive) procedure aimed at improving cash flow by arriving at an answer quickly, although not necessarily the ‘right’ answer, then it will achieve its aim. It is not, however, and never can be, a substitute for other dispute resolution procedures used in the industry.

1 [1999] EWHC (Technology and Construction Court)

2 In England and Wales, the appointment of the adjudicator and delivery of the notice of referral both have to occur within 7 days of the notice of adjudication.